TIDMSMS
RNS Number : 4902H
Smart Metering Systems PLC
12 March 2018
Smart Metering Systems plc
("SMS" or "the Company" or "the Group")
Final results for the year ended 31 December 2017
Smart Metering Systems plc (AIM: SMS.L) is pleased to announce
its final results for the 12 months to 31 December 2017, which show
continued growth across all business areas.
Financial highlights
-- Revenue increased by 18% to GBP79.6m (2016: GBP67.2m)
-- Total annualised recurring revenue(1) increased by 38% to GBP57.0m (2016: GBP41.3m)
o Gas: meter recurring revenue increased by 15% to GBP36.1m
(2016: GBP31.5m) and data recurring revenue increased by 15% to
GBP3.0m (2016: GBP2.6m)
o Electricity: meter recurring revenue increased by 283% to
GBP11.2m (2016: GBP2.9m) and data recurring revenue grew 56% to
GBP6.7m (2016: GBP4.3m)
-- Gross profit increased by 9% to GBP40.4m (2016: GBP36.9m)
-- Gross profit margin decreased by 4% to 51% (2016: 55%)
-- EBITDA increased by 19% to GBP38.8m (2016: GBP32.5m)
-- EBITDA margin increased by 1% at 49% (2016: 48%)
-- PBT decreased by 2% to GBP18.0m (2016: GBP18.2m)
-- Earnings per share decreased to 16.17p (2016: 17.33p)
-- *Pre-exceptional EBITDA(2) increased by 22% to GBP40.3m (restated 2016: GBP33.0m)
-- *Underlying PBT(2,3) increased by 7% to GBP22.2m (restated 2016: GBP20.7m)
-- *Underlying earnings per share(4) increased to 19.93p (restated 2016: 19.66p)
-- Final dividend of 3.46p per ordinary share totalling 5.20p
for the full year (2016: 4.10p), an increase of 27%
-- Net debt at 31 December 2017 was GBP36.5m (2016: GBP94.2m),
with access to cash and undrawn facilities of GBP243.5m (2016:
GBP55.8m)
* In 2017 the Board has taken the decision to change the
presentation of the underlying performance measures to now include
other operating income. The Board believe this income is an
integral feature of the replacement of meters, particularly
prevalent during the current smart domestic rollout and will occur
with greater regularity on an ongoing basis. All prior year
underlying results have been restated in accordance with this new
approach.
1 Recurring revenue refers to revenue generated by meter rental
and data contracts. Annualised recurring revenue refers to the
revenue being generated at a point in time.
2 Pre-exceptional EBITDA and underlying PBT figures are
presented under our revised approach to include other operating
income.
3 Underlying PBT is before exceptional items and intangible amortisation.
4 Underlying earnings per share is profit after taxation but
before exceptional items and intangible amortisation, divided by
the weighted average number of ordinary shares in issue.
Operational highlights
-- Total gas and electricity metering and data assets increased
by 780,000 to just over 2.03 million under management at 31
December 2017 (2016: 1.25 million)
o Total gas meter portfolio, including 3(rd) party management
assets, increased by 45% to 1,273,000 (2016: 881,000), with
industrial and commercial (I&C) meters increasing by 14% to
163,000 (2016: 143,000). Gas data portfolio increased by 17% to
126,000 (2016: 108,000)
o Total electricity meter portfolio increased by 301% to 309,000
(2016: 77,000). Electricity data portfolio increased by 74% to
323,000 (2016: 186,000)
-- ADM(TM) installations up 13% to 103,000 units at 31 December 2017 (2016: 91,000)
-- Capital expenditure on revenue generating assets was GBP122.8m (2016: GBP42.5m)
Alan Foy, Chief Executive Officer, commented:
"2017 has been a year of investment in our business - building
capacity to grow and deliver for our customers, particularly in the
domestic smart meter rollout.
We enter 2018 with a solid financial platform and are well
positioned to continue making progress in our core markets."
For further Information:
Smart Metering Systems plc 0141 249 3850
Alan Foy, Chief Executive Officer
David Thompson, Chief Financial Officer
Craig McGinn, Company Secretary
Cenkos Securities plc 0131 220 6939 / 0207 397 8900
Neil McDonald
Beth McKiernan
Kreab 020 7074 1800
Matthew Jervois
Daniel Holgersson
Notes to Editors
About Smart Metering Systems
Smart Metering Systems plc installs, owns and operates gas and
electricity meters throughout the UK both in relation to domestic
customers and industrial & commercial. The Company provides
services for gas and electricity meter installations to help energy
companies meet the UK Government's target to offer every household
smart meters by 2020.
The Company's services also include full end to end energy
management services, infrastructure design, installation,
consultancy and project management services for new gas,
electricity, water and telecoms connections for licenced energy and
telecoms suppliers, end consumers and the UK's licenced electricity
Distribution Network Owners (DNO's).
The Company is headquartered in Glasgow and has a network of
offices in Cardiff, Cambridge, Bolton, Doncaster, Rugby, and
Normanton.
Established in 1995, the Company was admitted to the AIM market
in July 2011 and is now part of the FTSE AIM 50 index. For more
information on SMS please visit the Company's website:
www.sms-plc.com.
Chairman's statement
I am pleased with the progress made in the year, another year of
strong trading activity contributing to continued growth across the
business.
2017 has seen us make excellent progress, investing to build
capacity through our strategic plan to enable us to install, own
and manage a significantly increased number of utility metering
assets for our energy supplier customers - particularly in the
smart domestic market. This platform and increased capacity across
all aspects of our operations puts us in a strong position to
continue to grow our share of the UK's smart domestic meter
installation programme over the next three to four years.
Whilst continuing our profitable growth, the link to our
heritage remains strong, with a focus on serving our customers. Our
core values of investing in our people, systems and capacity remain
as important to us today as they have been over the last 22 years.
We have grown to 825 staff on a national basis and our people are
key to delivering excellent customer service. I would like to thank
all our employees for their highly valued contribution to serving
our customers.
We now manage over two million utility metering and data assets
on behalf of a continually expanding customer base of energy
suppliers in both the Industrial and Commercial (I&C) and
Domestic markets. This now includes a total portfolio of over
420,000 smart domestic meters.
In November 2017, we refinanced the business, extending the term
of our GBP280m revolving credit facility and completing a GBP150m
equity placing, providing us with a strong financial platform to
help our customers complete their domestic smart meter programmes.
I would like to thank our existing and new long-term investors and
funders for their support.
Delivering our strategy
Last year we strategically changed our operational delivery
model to gain direct control over a large proportion of our
installation capacity and the end-to-end IT platform which
underpins it. The value of this approach can be seen in the last
year as SMS has performed strongly - deploying more capital and
generating more incremental annualised recurring revenue than in
the two previous years combined. This long-term annualised and
index-linked recurring revenue has increased by 38% during the
year, driven by the management and systems capacity in which we
have invested. This enables us to provide energy suppliers with
complete confidence in our ability to deliver their mandated roll
out targets.
The UK domestic smart meter rollout is a government programme,
requiring each energy supplier to offer installation of a smart
meter in every home and business across the UK by 2020. This
represents our largest market opportunity to increase the utility
meters under management and as a result grow our index linked
recurring revenue, with c.43m meters still to be installed across
the market. Our strategy has positioned SMS to have control over
the systems, people, processes and capacity to deliver on the
market opportunity.
We plan to continue to increase our metering installation and
management capacity and run rates with our growing customer base to
enable SMS to continue to grow the two million assets currently
under management.
Our strategic priorities, in 2018, will be to:
1. Continue to install and own utility metering infrastructure
and secure rental and data revenues from our contracted energy
suppliers in the I&C market.
2. Build on our strategic positioning and investment in capacity
to take advantage of the domestic smart market opportunity in the
UK. This is founded on our proven end-to-end delivery capability,
increasing capacity and track record of customer service and
operational delivery.
3. Innovate our services to build big data, energy management,
financing and installation capabilities that enable our customers
to reduce their carbon emissions, and facilitate our investment in
infrastructure asset classes which provide long-term recurring
revenue.
People and systems
Our Board has evolved in 2017. In March we announced that Glen
Murray, who had served as Chief Financial Officer of SMS since
2011, had decided to step down from the Board and leave the
business. I would like to thank Glen, on behalf of the Board, for
his significant contribution to SMS over the last six years. We
appointed David Harris as his replacement, who unfortunately
resigned in August for health reasons. In September, we welcomed to
the Board David Thompson as Chief Financial Officer. David had
already made a significant contribution to the SMS success story in
his previous role as Group Finance Director and is ideally placed
to help drive the continued growth of the Company. In January 2018,
Kelly Olsen joined us as a Non-executive Director, bringing a
wealth of experience as an information technology specialist. Kelly
is chairing a newly created Information and Technology Committee of
the Board, with a remit to review and provide strategic guidance on
development of the Company's technology programmes. This is
recognition of the importance of technology, information security
and IT systems in providing the platform for our business to
deliver a first-class customer experience. It will also provide a
solid foundation for future IT investment, ultimately contributing
to future shareholder returns.
We have continued to invest heavily in our people during 2017,
most notably through our in-house training academy to increase and
develop our capacity for the domestic smart meter rollout. This
capability is also key to our leading Health & Safety and
technical assurance management controls, which are at the heart of
everything we do.
The business continues to operate with a market-focused
structure, with three main service lines:
Asset management: We fund, at highly competitive rates, new
meter and data assets which we install direct or adopt from third
parties.
Asset installation: We have built one of the largest independent
and national dual fuel metering installation services, enabling
energy suppliers to achieve their mandated obligations under the
government's smart meter programme.
Energy Management: We have an extensive team of experts who
provide a full range of energy services, including risk management,
bureau, energy efficiency, carbon reduction, generation and
storage.
Our technology, IT development and data security capabilities
underpin all of these service lines and also provide new
opportunities to innovate our services to the benefit of our
customers beyond smart metering, particularly as we consider
opportunities to install other long-term assets.
The safety of everyone involved in or associated with our
business is of the utmost critical importance to us. "Safety
Matters" has been put at the heart of our business culture. We are
proud of our assurance activities which always ensure that health
and safety is our top agenda item. However, we are not complacent
and continue to invest and rigorously challenge, evaluate and
assess the risks within our business to ensure that we are doing
everything possible to ensure the health and safety of all our
stakeholders.
Dividend
We are pleased to announce a proposed final cash dividend of
3.46p for the year ended 31 December 2017 (2016: 2.73p). In
addition to the interim dividend of 1.74p (2016: 1.37p), this will
make a total dividend of 5.20p (2016: 4.10p), a 27% increase. The
final dividend will be paid on 31 May 2018 to those shareholders on
the register (record date) on 27 April 2018 with an ex-dividend
date of 26 April 2018.
Outlook
We enter 2018 with a solid financial platform, a strong and
growing utility metering installation capacity and ownership
proposition, and the capability to innovate our services for our
customers' benefit over the long term.
We are in a strong position to continue to benefit from the
domestic smart metering market and are continuing to increase the
range of services to reduce customers' carbon emissions and
transform the UK energy system for the future.
We are committed to investing in metering installation and our
ownership capacity, listening to and serving our customers' needs
and innovating our service proposition.
We are confident that our proven and established leadership team
will continue to build on our success as we deliver our strategic
plan and take the business to the next phase of growth.
Chief Executive Officer's statement
I am pleased to report on the continued strong business and
financial performance of SMS for the year ended 31 December
2017.
2017 has been a year of investment in our business - building
capacity to grow and deliver for our customers in the domestic
smart meter rollout which stipulates that smart electricity and gas
meters are to be offered to every home in the UK by the end of
2020. After transforming our business model in 2016 through three
strategic acquisitions to take control of our delivery services, we
have accelerated our installation activities throughout 2017. As a
result we have grown to have over two million utility metering and
data assets under management (+62%), generating GBP57.0m in
annually recurring index-linked revenue (+38%). The scale of this
opportunity is clear: we invested more capital in meter assets and
added more annualised recurring revenue in 2017 than in the two
previous years combined. This is illustrated by continued progress
to the end of February 2018 where our portfolio of meter and data
assets stood at 2.26 million generating GBP60.7m of annualised
recurring revenue.
In order to grow these installation run rates we have continued
to invest in capacity across our business. We have invested in
inventory to ensure we are able to meet customer demand, we have
invested in a new operational delivery hub in Doncaster, we have
invested in our IT systems and in our contact centre, we have
invested in our health and safety and compliance management, and we
continue to invest in our field engineer capacity through our
accredited training school. We were particularly pleased to also
add further financial capacity to the business through the
successful completion of a GBP150m equity placement in November
2017.
During 2017 we materially began to roll out smart meter
installations from the eight non-exclusive framework agreements
with UK domestic energy suppliers signed the previous year, and
were pleased to add another significant framework contract to this
list in August. These nine customers supply c.2.5 million consumers
and on their behalf we installed over 370,000 smart meters to take
our total smart portfolio to over 420,000 meters.
Operational review
During 2017 our gas and electricity meter and data portfolio
under management increased by 62% from 1.25 million to over 2
million assets. Meter assets grew by 65% from 958,000 to 1,583,000
and data assets grew by 53% from 294,000 to 449,000 data
points.
Our primary financial KPI is our annualised long-term
index-linked recurring revenue (derived from our recurring rental
revenue from our installed meter and data asset base) which
increased by 38% from GBP41.3m to GBP57.0m as of the end of 2017.
This increase of GBP15.7m compares to an increase of GBP6.6m in
2016, demonstrating the size of the opportunity ahead of us, and is
the primary rationale behind the GBP150m equity placement which
provides us with the financial capacity to take advantage of this
opportunity.
This financial KPI is central to our long-term annuity financial
model as, once installed, these meters provide recurring rental
revenue for the lifetime of the assets, alongside providing
maintenance, support and ongoing service opportunities.
Industrial & Commercial (I&C) market
SMS has a strong and proven track record in the I&C market
and we continue to benefit from continued demand for our services,
particularly as the government has extended the date for which
advanced meters contribute to its smart rollout obligations to
October 2018 in the small business segment. This means that not
only do we support our contracted energy supplier customers to
complete their meter exchange programmes, but we also then collect
and provide meter consumption data to them and the end users for
billing and energy management purposes. Demand for these services
remains strong, particularly in the micro business category, and we
expect that to remain the case throughout 2018.
In the I&C gas market we continue to deploy the ADM device,
our advanced metering solution, which provides half-hourly meter
read information and we now have 103,000 of these operational
across the UK (increased from 91,000 at the end of 2016). We
continue to see opportunities for our ADM device as part of other
UK and international utility metering solutions.
UK Domestic market
2017 saw SMS materially embark on the rollout of smart meters as
part of the UK government's mandated smart meter programme, which
requires all UK households and small businesses to be offered a
smart meter by the end of 2020.
There are c.53 million gas and electricity meters in the UK and,
as of the end of September 2017, there were 9.44 million smart and
advanced meters installed in homes and businesses across the
country. The market share of "challenger" energy suppliers in the
domestic market has increased to c.17% at the start of 2017 (c.9
million meters) and SMS has framework agreements with nine such
independent energy suppliers, equivalent to up to five million of
these meter points. We continue to engage with all energy suppliers
in the market and believe we provide an attractive proposition to
meet their installation deadlines, as we have both the financial
and operational capacity to provide certainty to deliver their
mandated obligations.
Energy management services
We provide the tools, expertise and knowledge to help our
customers make better energy decisions, increase their control over
their energy expenditure and reduce their costs and carbon
footprints. Our innovative approach to monitoring and managing
consumption data allows us to extract additional value for our
customers and enables us to provide an integrated service covering
collection and analysis of meter consumption data and the
utilisation of that data to identify and deliver energy reduction
activity. Our energy services therefore both take advantage of and
provide opportunities for increased data recurring revenue, as well
as providing a full range of energy management services in their
own right. In 2017 we processed and analysed 630,000 billing
points, delivered over 300 energy audits and compliance surveys and
continued to identify significant opportunities for SMS to deliver
turnkey energy reduction projects which we expect to accelerate in
2018.
We also provide and manage multi-utility infrastructure
solutions throughout the UK. Our services cover the entire
connections process from the initial feasibility stages and
procurement to the final installation works, ranging from one-off
gas and electricity connections, to multi-utility major projects.
Our unrivalled customer service and years of expertise continue to
make us the utility connections provider of choice and we see
continued and increasing demand for these services.
Consolidated statement of comprehensive income
For the year ended 31 December 2017
2017 2016
Notes GBP'000 GBP'000
------------------------------------ ----- -------- --------
Revenue 1 79,593 67,188
Cost of sales 2 (39,164) (30,257)
------------------------------------ ----- -------- --------
Gross profit 40,429 36,931
Administrative expenses 2 (21,270) (17,438)
Other operating income 2 3,446 1,075
------------------------------------ ----- -------- --------
Profit from operations 2 22,605 20,568
------------------------------------ ----- -------- --------
Attributable to:
Operating profit before exceptional
items, other operating income and
amortisation of intangibles 22,825 21,939
Amortisation of intangibles (2,151) (1,991)
Other operating income 3,446 1,075
Exceptional items 2 (1,515) (455)
------------------------------------ ----- -------- --------
Finance costs: exceptional 5 (524) -
Finance costs: other 5 (4,137) (2,327)
Finance income 5 21 2
------------------------------------ ----- -------- --------
Profit before taxation 17,965 18,243
Taxation 6 (3,306) (2,998)
------------------------------------ ----- -------- --------
Profit for the year attributable
to equity holders 14,659 15,245
Other comprehensive income - -
------------------------------------ ----- -------- --------
Total comprehensive income 14,659 15,245
------------------------------------ ----- -------- --------
The profit from operations arises from the Group's continuing
operations.
Earnings per share attributable to owners of the parent during
the year:
Notes 2017 2016
----------------------------------- ----- ----- -----
Basic earnings per share (pence) 7 16.17 17.33
Diluted earnings per share (pence) 7 15.89 17.02
----------------------------------- ----- ----- -----
Consolidated statement of financial position
As at 31 December 2017
Notes 2017 2016
GBP'000 GBP'000
------------------------------------ ----- -------- --------
Assets
Non-current assets
Intangible assets 9 13,870 14,611
Property, plant and equipment 10 265,346 157,977
Investments 11 118 118
Trade and other receivables 14 594 628
------------------------------------ ----- -------- --------
279,928 173,334
------------------------------------ ----- -------- --------
Current assets
Inventories 13 16,575 6,121
Trade and other receivables 14 25,708 15,794
Cash and cash equivalents 15 150,600 7,999
------------------------------------ ----- -------- --------
192,883 29,914
------------------------------------ ----- -------- --------
Total assets 472,811 203,248
------------------------------------ ----- -------- --------
Liabilities
Current liabilities
Trade and other payables 16 48,182 26,742
Bank loans and overdrafts 17 23,197 14,530
Commitments under hire purchase
agreements 18 - 28
------------------------------------ ----- -------- --------
71,379 41,300
------------------------------------ ----- -------- --------
Non-current liabilities
Bank loans 17 163,887 87,646
Commitments under hire purchase
agreements 18 - 1
Deferred tax liabilities 20 9,924 7,885
------------------------------------ ----- -------- --------
173,811 95,532
------------------------------------ ----- -------- --------
Total liabilities 245,190 136,832
------------------------------------ ----- -------- --------
Net assets 227,621 66,416
------------------------------------ ----- -------- --------
Equity
Share capital 22 1,124 892
Share premium 158,592 10,861
Other reserve 24 9,562 8,447
Treasury shares 23 (697) (327)
Retained earnings 59,040 46,543
------------------------------------ ----- -------- --------
Total equity attributable to equity
holders of the parent company 227,621 66,416
------------------------------------ ----- -------- --------
Company registration number
SC367563
Consolidated statement of changes in equity
For the year ended 31 December 2017
Share Share Other Treasury Retained
Attributable to the owners capital premium reserve shares earnings Total
of the parent company: GBP'000 GBP'000 GBP'000 GBP'000 GBP'000 GBP'000
----------------------------- -------- -------- -------- -------- --------- --------
As at 1 January 2016 861 9,650 4,258 (231) 32,847 47,385
Total comprehensive income
for the year - - - - 15,245 15,245
Transactions with owners
in their capacity as owners
Dividends (note 8) - - - - (3,145) (3,145)
Shares issued 31 1,211 4,189 - - 5,431
Shares held by SIP - - - (96) - (96)
Share options - - - - 444 444
Income tax effect of share
options - - - - 1,152 1,152
----------------------------- -------- -------- -------- -------- --------- --------
As at 31 December 2016 892 10,861 8,447 (327) 46,543 66,416
Total comprehensive income
for the year - - - - 14,659 14,659
Transactions with owners
in their capacity as owners
Dividends (note 8) - - - - (4,028) (4,028)
Shares issued 232 147,731 1,115 - - 149,078
Shares held by SIP - - - (370) 70 (300)
Share options - - - - 446 446
Income tax effect of share
options - - - - 1,350 1,350
----------------------------- -------- -------- -------- -------- --------- --------
As at 31 December 2017 1,124 158,592 9,562 (697) 59,040 227,621
----------------------------- -------- -------- -------- -------- --------- --------
See notes 23 and 24 for details of the treasury shares and other
reserve. The movement in share premium is net of GBP4.0m of
permissible costs in relation to the equity placing.
Consolidated statement of cash flows
For the year ended 31 December 2017
2017 2016
GBP'000 GBP'000
--------------------------------------------- --------- --------
Operating activities
Profit before taxation 17,965 18,243
Finance costs 4,661 2,327
Finance income (21) (2)
Fair value movement on derivatives - (46)
Depreciation 14,061 9,977
Amortisation 2,151 1,991
Share-based payment expense 146 348
Movement in inventories (10,454) (4,773)
Movement in trade and other receivables (9,300) (2,646)
Movement in trade and other payables 22,031 6,330
--------------------------------------------- --------- --------
Cash generated from operations 41,240 31,749
Taxation (1,008) (401)
--------------------------------------------- --------- --------
Net cash generated from operations 40,232 31,348
--------------------------------------------- --------- --------
Investing activities
Payments to acquire property, plant and
equipment (123,864) (42,904)
Disposal of property, plant and equipment 3,335 2,499
Payments to acquire intangible assets (1,416) (1,084)
Acquisition of subsidiary - (35)
Cash acquired with subsidiary - 452
Finance income 21 2
--------------------------------------------- --------- --------
Net cash used in investing activities (121,924) (41,070)
--------------------------------------------- --------- --------
Financing activities
New borrowings 104,075 30,442
Capital repaid (19,167) (12,845)
Hire purchase repayments (29) (1,028)
Finance costs (4,521) (2,646)
Net proceeds from share issue 147,963 1,232
Dividend paid (4,028) (3,145)
--------------------------------------------- --------- --------
Net cash generated from financing activities 224,293 12,010
--------------------------------------------- --------- --------
Net increase in cash and cash equivalents 142,601 2,288
Cash and cash equivalents at the beginning
of the financial year 7,999 5,711
--------------------------------------------- --------- --------
Cash and cash equivalents at the end of
the financial year (note 15) 150,600 7,999
--------------------------------------------- --------- --------
Reconciliation of net cash flow to movement in net debt
For the year ended 31 December 2017
2017 2016
GBP'000 GBP'000
-------------------------------------- -------- --------
Increase in cash and cash equivalents 142,601 2,288
Cash outflow from movement in debt (84,908) (17,460)
-------------------------------------- -------- --------
Changes in net debt arising from cash
flows 57,693 (15,172)
Net debt at beginning of year (94,176) (79,004)
-------------------------------------- -------- --------
Net debt at end of year (36,483) (94,176)
-------------------------------------- -------- --------
Accounting policies
The consolidated financial statements of the Group for the year
ended 31 December 2017 were approved and authorised for issue in
accordance with a resolution of the Directors on 13 March 2018.
Smart Metering Systems plc is a public limited company limited by
shares and incorporated in Scotland, with its registered office at
2nd Floor, 48 St. Vincent Street, Glasgow G2 5TS. The Company's
ordinary shares are traded on AIM.
Basis of preparation
The consolidated financial statements have been prepared in
accordance with EU-endorsed International Financial Reporting
Standards (IFRSs), IFRIC interpretations and the Companies Act 2006
applicable to companies reporting under IFRSs.
The consolidated financial statements are presented in British
Pounds Sterling (GBP) and all values are rounded to the nearest
thousand (GBP'000) except where otherwise indicated.
The financial information set out above does not constitute the
Group's statutory accounts for the years ended 31 December 2017 or
2016, but is derived from those accounts. Statutory accounts for
2016 have been delivered to the Register of Companies, and those
for 2017 will be delivered in due course. The auditor has reported
on those accounts; their reports were (i) unqualified, (ii) did not
include a reference to any matters to which the auditor drew
attention by way of emphasis without qualifying their report and
(iii) did not contain statements under Section 498(2) or (3) of the
Companies Act 2006.
Whilst the financial information included in this announcement
has been computed in accordance with IFRS as adopted by the
European Union, this announcement does not itself contain
sufficient information to comply with IFRS.
Going concern
Management prepares budgets and forecasts on a rolling 24-month
basis. These forecasts cover operational cash flows and investment
capital expenditure. The Group has committed bank facilities of
GBP280m which extend to November 2020.
Based on the current projections and facilities in place, the
Directors consider it appropriate to continue to prepare the
financial statements on a going concern basis.
Basis of consolidation
The consolidated accounts of the Group include the assets,
liabilities and results of the Company and subsidiary undertakings
in which Smart Metering Systems plc has a controlling interest.
Control is achieved when the Group is exposed, or has rights, to
variable returns from its involvement with the investee and has the
ability to affect those returns through its power over the
investee. Specifically, the Group controls an investee if, and only
if, the Group has all of the following: power over the investee
(i.e. existing rights that give it the current ability to direct
the relevant activities of the investee); exposure, or rights, to
variable returns from its involvement with the investee; and the
ability to use its power over the investee to affect its
returns.
When necessary, adjustments are made to the financial statements
of subsidiaries to bring their accounting policies into line with
the Group's accounting policies. All intra-Group assets and
liabilities, equity, income, expenses and cash flows relating to
transactions between members of the Group are eliminated in full on
consolidation.
Use of estimates and judgements
The Directors are required to make judgements, estimates and
assumptions about the carrying amount of assets and liabilities
that are not readily apparent from other sources. These estimates
and associated assumptions are based on historical experience and
other factors that are considered to be relevant. Actual results
may differ from these estimates. The estimates and underlying
assumptions are reviewed on an ongoing basis. Revisions to
accounting estimates are recognised in the period in which the
estimate is revised if the revision affects only that period, or if
the period of the revision and future periods if the revision
affects both current and future periods.
Critical accounting judgements
The following are the critical judgements, that the Directors
have made in the process of applying the Group's accounting
policies and that have the most significant effect on the amounts
recognised in the Financial Statements.
-- capitalisation of internal installation costs;
o a significant level of in-house installation of customers'
meter assets is carried out by the Group, the costs of which are
capitalised and depreciated as part of fixed asset depreciation.
Judgement is required by management to ascertain the appropriate
categories and proportion of overheads and other expenses that are
directly attributable to installation of meter assets.
-- Recoverability of termination income and the impact on
traditional domestic meter assets residual values
o The timing of the removal of traditional domestic meters
during the smart meter rollout and the associated termination fees
impacts the residual value of these meters on subsequent disposal.
Judgement is required around the expected pace of the smart meter
replacement programme to ensure any gains or losses on disposal are
minimised.
Key sources of estimation uncertainty
The key assumptions concerning the future and other key sources
of estimation uncertainty at the reporting date that may have a
significant risk of causing material adjustment to the carrying
amounts of assets and liabilities within the next financial year
are discussed below.
-- impairment of goodwill;
o Management reviews the valuation of goodwill for impairment
annually or if events and changes in circumstances indicate that
the carrying value may not be recoverable. The recoverable amount
is determined based on value in use.
Revenue recognition
Revenue is recognised to the extent that it is probable that the
economic benefits will flow to the Group and the revenue can be
reliably measured. Revenue is measured at the fair value of the
consideration received or receivable, excluding discounts and
VAT.
Revenue is recognised when the significant rewards and risk of
ownership have been passed to the buyer. The risk and rewards of
ownership transfer when the Group fulfils its contractual
obligations to customers by supplying services.
Meter rental income
Rental income represents operating lease payments receivable
from gas and electricity suppliers. Revenue is recognised on a
straight-line basis over the lease term. Rental income is
calculated on a daily basis and invoiced monthly. Rental contracts
do not operate on a fixed-term basis and are cancellable at any
time by the lessee, in which case termination payments are levied
and recognised as other operating income in accordance with the
terms of the contract with immediate effect and do not transfer
risks and rewards of ownership of the underlying asset. They are
therefore considered as operating lease arrangements and accounted
for as such.
In line with the underlying contractual terms, termination fees
due are recognised at fair value upon notification of
de-appointment and are classified as other operating income.
Utility connection
Revenue from connection contracts is recognised upon delivery of
the related service.
Data management
Data income is recognised on a straight line basis over the
contract period. Amounts invoiced in advance are recorded as
deferred income.
Energy management
Energy advice is provided and revenue is recognised when risk
and reward transfers. Advice is normally quite specific so
recognised on a transactional basis.
Financial assets
Initial recognition and measurement
Financial assets within the scope of IAS 39 are classified as
financial assets at fair value through profit or loss, loans and
receivables, held-to-maturity investments and available-for-sale
financial assets. The Group determines the classification of its
financial assets at initial recognition.
The Group's financial assets include cash and short-term
deposits, trade and other receivables.
Financial liabilities
Initial recognition and measurement
Financial liabilities within the scope of IAS 39 are classified
as financial liabilities at fair value through profit or loss or
loans and borrowings, as appropriate. The Group determines the
classification of its financial liabilities at initial recognition.
All financial liabilities are recognised initially at fair value
and, in the case of loans and borrowings, net of directly
attributable transaction costs.
The Group's financial liabilities include trade and other
payables, bank overdrafts, loans and borrowings and financial
guarantee contracts.
Offsetting of financial instruments
Financial assets and financial liabilities are offset, and the
net amount reported in the Consolidated statement of financial
position, if, and only if, there is a currently enforceable legal
right to offset the recognised amounts and there is an intention to
settle on a net basis, or to realise the assets and settle the
liabilities simultaneously.
Initial recognition and subsequent measurement
The Group has used derivative financial instruments, such as
interest rate swaps, to hedge its interest rate risk. Such
derivative financial instruments are initially recognised at fair
value on the date on which a derivative contract is entered into
and are subsequently remeasured at fair value. Derivatives are
carried as financial assets when the fair value is positive and as
financial liabilities when the fair value is negative. The Group
has not designated any derivatives for hedge accounting.
Exceptional items and separately disclosed items
The Group presents as exceptional items on the face of the
Consolidated statement of comprehensive income those material items
of income and expense which, because of the nature or expected
infrequency of the events giving rise to them, merit separate
presentation to allow shareholders to understand better the
elements of financial performance in that year, so as to facilitate
comparison with prior periods and to assess better trends in
financial performance. Termination fee income is reported as a
separately disclosed item given the materiality and nature.
Research and development
Expenditure on pure and applied research activities is
recognised in the Consolidated statement of comprehensive income as
an expense as incurred.
Expenditure on product development activities is capitalised if
the product or process is technically and commercially feasible and
the Group intends and has the technical ability and sufficient
resources to complete development; if future economic benefits are
probable; and if the Group can measure reliably the expenditure
attributable to the intangible asset during its development. The
expenditure capitalised includes the cost of materials, direct
labour and an appropriate proportion of overheads.
Capitalised development expenditure is stated at cost less
accumulated amortisation and accumulated impairment losses.
Amortisation is calculated, when the product or system is
available for use, so as to write off the cost of an asset, less
its estimated residual value, over the useful economic life of that
asset as follows:
-- Amortisation 10% on cost straight line
Intangible assets
Intangible assets acquired separately from third parties are
recognised as assets and measured at cost.
Following initial recognition, intangible assets are measured at
cost at the date of acquisition less any amortisation and any
impairment losses. Amortisation costs are included within the
administrative expenses disclosed in the Consolidated statement of
comprehensive income.
Intangible assets acquired as part of a business combination are
recognised outside goodwill if the asset is separable or arises
from contractual or other legal rights and its fair value can be
measured reliably.
Intangible assets are amortised over their useful lives as
follows:
-- Software 12.5% and 20% straight line
-- Customer contracts 20%
Useful lives are examined on an annual basis and adjustments,
where applicable, are made on a prospective basis.
Longer life software is related to underlying meter assets.
Goodwill
Goodwill arising on consolidation represents the excess of the
consideration transferred and the fair value of the identifiable
assets and liabilities of the acquiree at the date of acquisition.
Goodwill on acquisitions of subsidiaries is included in intangible
assets. Goodwill is not amortised but is tested annually for
impairment and is carried at cost less accumulated impairment
losses. See note 12 for detailed assumptions and methodology.
Impairment losses are not subsequently reversed.
Goodwill is allocated to cash-generating units (CGU) for the
purpose of impairment testing. The allocation is made to those CGUs
or groups of CGUs that are expected to benefit from the business
combination in which the goodwill arose identified according to its
operating segment.
Provisional fair values are adjusted against goodwill if
additional information is obtained within one year of the
acquisition date about facts or circumstances existing at the
acquisition date. Other changes in provisional fair values are
recognised through profit or loss.
Changes in contingent consideration arising from additional
information, obtained within one year of the acquisition date,
about facts or circumstances that existed at the acquisition date
are recognised as an adjustment to goodwill. Other changes in
contingent consideration are recognised through profit or loss,
unless the contingent consideration is classified as equity. In
such circumstances, changes are recognised within equity.
Impairment
At each reporting date, the Group reviews the carrying amounts
of its property, plant and equipment and intangibles to determine
whether there is any indication that those assets have suffered an
impairment loss. If any such indication exists, the recoverable
amount of the asset is estimated in order to determine the extent
of the impairment loss (if any). Where the asset does not generate
cash flows that are independent from other assets, the Group
estimates the recoverable amount of the CGU to which the asset
belongs.
The recoverable amount is the higher of fair value less costs to
sell and value-in-use. In assessing value-in-use, the estimated
future cash flows are discounted to their present value using a
pre-tax discount rate that reflects current market assessments of
the time value of money and the risks specific to the asset for
which the estimates of future cash flows have been adjusted.
If the recoverable amount of an asset (or CGU) is estimated to
be less than its carrying amount, the carrying amount of the asset
(or CGU) is reduced to its recoverable amount. An impairment loss
is recognised as an expense immediately.
Where an impairment loss subsequently reverses, the carrying
amount of the asset (or CGU) is increased to the revised estimate
of its recoverable amount, but so that the increased carrying
amount does not exceed the carrying amount that would have been
determined had no impairment loss been recognised for the asset (or
CGU) in prior years. A reversal of an impairment loss is recognised
as income immediately.
Detailed assumptions used in the annual impairment tests with
regard to discount, growth and inflation rates are set out in note
12 to the accounts.
Property, plant and equipment
Property, plant and equipment is stated at cost, net of
accumulated depreciation and/or accumulated impairment losses, if
any. Such cost includes the cost of replacing part of the plant and
equipment. When significant parts of property, plant and equipment
are required to be replaced in intervals, the Group recognises such
parts as individual assets with specific useful lives and
depreciation, respectively. Pursuant to the acquisition of the
meter installation businesses on 18 March 2016 (see note 27)
certain internal costs to the Group are also capitalised where they
are demonstrated as being directly attributable to bringing the
meter rental assets into their useable condition.
All other repair and maintenance costs are recognised in the
Consolidated statement of comprehensive income as incurred.
Depreciation is calculated on a straight line basis over the
estimated useful life of the asset as follows:
-- Freehold property 2% on cost
-- Short leasehold property Shorter of the lease term or 15% and 20% on cost
-- Plant and machinery 5%, 10% and 20% on cost
-- Fixtures, fittings and equipment 15% and 33% on cost
-- Motor vehicles 25% on cost
-- Land is not depreciated.
During 2016, the Directors reassessed the useful life of
domestic meters that were due to be replaced before the end of
their useful life as part of the smart meter roll out programme. An
exercise was undertaken to identify all meters affected and their
useful life was shortened from 20 years to 5 years. In addition,
the receipt of termination income under certain circumstances when
meter rental assets are removed before the end of their useful life
was also reflected in a revision to residual values. These factors
resulted in a net increase to the overall depreciation charge of
GBP685,000 in 2016.
An item of property, plant and equipment and any significant
part initially recognised is derecognised upon disposal or when no
future economic benefits are expected from its use or disposal. Any
gain or loss arising on derecognition of the asset (calculated as
the difference between the net disposal proceeds and the carrying
amount of the asset) is included in the Consolidated statement of
comprehensive income when the asset is derecognised. The asset's
residual values, useful lives and methods of depreciation are
reviewed at each financial year end and adjusted prospectively, if
appropriate.
Property, plant and equipment is initially recorded at cost.
Inventories
Inventories are stated at the lower of cost and net realisable
value. Costs comprises direct materials. Net realisable value
represents the estimated selling price for inventories less all
estimated costs of completion and costs to be incurred in
marketing, selling and distribution.
Cash and cash equivalents
Cash and cash equivalents in the Consolidated statement of
financial position comprises cash at bank and in hand and
short-term deposits with an original maturity of three months or
less. For the purpose of the Consolidated statement of cash flows,
cash and cash equivalents consists of cash and short-term deposits
as defined above, net of outstanding bank overdrafts.
Hire purchase agreements
Assets held under hire purchase agreements are capitalised and
disclosed under property, plant and equipment at their fair value.
The capital element of the future payments is treated as a
liability and the notional interest is charged to the Consolidated
statement of comprehensive income in proportion to the remaining
balance outstanding.
Leased assets and obligations as lessee
Leases are classified as finance leases whenever the terms of
the lease transfer substantially all the risks and rewards of
ownership to the lessee. All other leases are classified as
operating leases. Assets acquired under finance leases are
capitalised in the balance sheet at their fair value or, if lower,
at the present value of the minimum lease payments, each determined
at the inception of the lease. The corresponding liability to the
lessor is recorded in the balance sheet as a finance lease
obligation. The lease payments are apportioned between finance
charges to the income statement and a reduction of the lease
obligations.
Rental payments under operating leases are charged to the income
statement on a straight line basis over the applicable lease
periods.
Group as lessor
Leases in which the Group does not transfer substantially all
the risks and rewards of ownership of assets are classified as
operating leases with meter income recognised in line with the
meter rental income policy.
Pension costs
The Group operates a defined contribution pension scheme for
employees. The assets of the scheme are held separately from those
of the Group. The annual contributions payable are charged to the
Consolidated statement of comprehensive income.
Share-based payments
IFRS 2 "Share-based Payment" has been applied to all grants of
equity instruments. The Group issues equity-settled share-based
payments to certain employees under the terms of the Group's
various employee-share and option schemes. Equity-settled
share-based payments are measured at fair value at the date of the
grant. The fair value determined at the grant date of equity
settled share-based payments is expensed on a straight-line basis
over the vesting period, based on an estimate of the shares that
will ultimately vest. Own shares held under trust for the Group's
employee share schemes are classed as Treasury shares and deducted
in arriving at Shareholders' equity. Purchases of own shares are
disclosed as changes in Shareholders' equity.
Taxation
Tax currently payable is based on the taxable profit for the
year. Taxable profit differs from accounting profit as reported in
the Consolidated statement of comprehensive income because it
excludes items of income or expense that are taxable or deductible
in other years and it further excludes items that are never taxable
or deductible. The Group's liability for current tax is measured
using tax rates that have been enacted or substantively enacted by
the reporting date.
Deferred tax is the tax expected to be payable or recoverable on
differences between the carrying amount of assets and liabilities
in the financial statements and the corresponding tax bases used in
the computation of taxable profit and is accounted for using the
balance sheet liability method. Deferred tax liabilities are
recognised for all taxable temporary differences and deferred tax
assets are recognised to the extent that it is probable that
taxable profits will be available against which deductible
temporary differences can be utilised. The deferred tax balance is
calculated based on tax rates that have been enacted or
substantively enacted by the reporting date.
Deferred tax assets include temporary differences related to
employee benefits settled via the issue of share options.
Recognition of the deferred tax assets assumes share options will
have a positive value at the date of vesting, which is greater than
the exercise price.
Standards and interpretations
These new accounting standards and amendments are applicable to
the Group for the first time in 2017. However, they do not impact
the annual consolidated financial statements of the Group. These
are:
Standard or Periods commencing
interpretation on or after
--------------- ---------------------------------- ------------------
Amendment to Recognition of Deferred Tax Assets 1 January
IAS 12 for Unrealised Losses 2017
Amendments Disclosure Initiative 1 January
to IAS 7 2017
--------------- ---------------------------------- ------------------
Standard or Periods commencing
interpretation on or after
-------------------- ------------------------------------- ------------------
IFRS 15 Revenue from Contracts with Customers 1 January
2018
Clarifications Revenue from Contracts with Customers 1 January
to IFRS 15 2018
IFRS 9 Financial Instruments 1 January
2018
IFRS 16 Leases 1 January
2019
Amendments Classifications and Measurement 1 January
to IFRS 2 of Share-based Payment Transactions 2018
Annual Improvements 1 January
to IFRSs 2014-2016 Cycle 2018
IFRIC Interpretation Foreign Currency Transactions 1 January
22 and Advance Consideration 2018*
-------------------- ------------------------------------- ------------------
* Not yet adopted for use in the European Union.
The above standards and interpretations will be adopted in
accordance with their effective dates and have not been adopted in
these financial statements.
For standards with a future effective date, Management are
reviewing the impact on the Group's financial statements. The key
considerations are as follows:
IFRS 15
An impact assessment has been performed on new standard IFRS 15
Revenue from Contracts with Customers ("IFRS 15") which SMS plc
will adopt from 1 January 2018. IFRS 15 introduces a five-step
approach to the timing of revenue recognition based on the delivery
of performance obligations and an assessment of when control is
transferred. This differs from existing IAS 11/18 which focuses on
the transfer of "risk and reward" as the point of recognition. The
Group will adopt the modified retrospective method where the
cumulative effect of initially applying the standard is recognised
as an adjustment to the opening balance sheet in the period of
initial application.
Scoping of our revenue streams has been considered as
follows;
-- Asset Management (Meter rental): This makes up around 50% of
total SMS revenue; rental income from suppliers is recognised as
revenue based on operating lease accounting and therefore falls in
scope for IFRS 16 and is discussed below.
-- Asset Management (Data): This involves the provision of data
recording and transmission services from meters to supplier.
Revenue is recognised straight line over the period of the
contract. All data revenue is in scope for IFRS 15.
-- Asset Installations: Transactional revenue is billed to the
customer on completion of the installation - which is when
"control" passes and revenue is recognised. This segment also
includes Connections revenue which is a subset of installations but
includes some longer-term projects. All installations revenue is in
scope for IFRS 15.
-- Energy Services: Provision of energy advice which is specific
to the customer, revenue is recognised on a transactional basis
when "control" is transferred and is fully in scope for IFRS
15.
For revenue which is in scope for IFRS 15, a review has been
carried out on existing customer contracts. Within SMS plc no
existing contracts have been identified where more than one
performance obligation exists. The majority of revenue comes from
the simple installation of a meter asset, where there is only one
performance obligation and control is deemed to transfer at the
same point in time as risk and reward previously. Occasionally, SMS
plc also engages in some longer-term contracts which fall under
Connections revenue within the Asset Installation business - SMS
Connections accounts for approximately 7% of Group revenue and only
a small proportion of this comprise longer-term contacts. In such
longer-term instances there may be various elements or stages to
the contracts however these elements are not deemed to be
"distinct" as defined by the standard and therefore only one
performance obligation is considered to exist in such instances
too. Our assessment concludes that no impact is expected when
transitioning to IFRS 15.
IFRS 16
SMS plc will adopt IFRS 16 Leases ("IFRS 16") on 1 January 2019,
as such a full impact assessment has been carried out. All meter
rental revenue within the Meter Assets business is treated as an
operating lease with SMS plc as the lessor and is therefore in
scope for IFRS 16. As a lessor, the new standard does not make any
significant changes to the way leases are accounted for currently
under IAS 17 but it does provide additional guidance on what is
defined as a lease. With regards to the definition of leases, SMS
plc will continue to treat existing leases as operating leases and
"grandfather" this assessment into the new standard. Any new
contracts entered into following 1 January 2019 will be considered
on their own merits under IFRS 16, however all meter rental revenue
is expected to continue to be classified as a lease and as such the
new standard is not expected to have any impact on the way SMS plc
accounts for its meter rental revenue.
SMS plc also holds some operating leases for buildings and
office equipment as the lessee. Under IFRS 16, a lease liability
will have to be recognised on the balance sheet for each and they
will be depreciated over the period of the lease. Please refer to
note 25 for details on the Group's operating lease commitments.
IFRS 9
Ahead of the adoption of IFRS 9 Financial Instruments ("IFRS 9")
on 1 January 2018, management has reviewed the impact of the
standard to ensure compliance with the new standard. Management
expects the impact on accounting for loan modifications and the
unlisted investment to be minimal, and the expected credit loss
model for impairment review will not have an overall impact on the
Group. The expected credit loss approach may impact the individual
retained earnings of individual entities within the Group due to
potential additional impairment provision for long term
intercompany receivables. These potential impairments would not
impact the Group as they would be intra-group items.
Notes to the financial statements
For the year ended 31 December 2017
1 Segmental reporting
For management purposes, the Group is organised into three core
divisions, Asset Management, Asset Installation and Energy
Management, which form the basis of the Group's reportable
operating segments, and operating segments within those divisions
are combined on the basis of their similar long-term economic
characteristics and similar nature of their products and services,
as follows:
-- Asset Management comprises regulated management of gas
meters, electric meters and ADM(TM) units within the UK.
-- Asset Installation comprises installation of domestic and
I&C gas meters and electricity meters throughout the UK.
-- Energy Management comprises the provision of energy advice.
Management monitors the operating results of its divisions
separately for the purpose of making decisions about resource
allocation and performance assessment. The operating segments
disclosed in the financial statements are the same as reported to
the Board. Segment performance is evaluated based on gross
profit.
At the most granular level of information presented to the CODM,
Asset Management aggregates four operating segments (gas meter
rental, electricity meter rental, gas data and electricity data)
principally on the basis that they derive from the same asset using
similar processes for consistent customers and are often provided
together. Asset Installation aggregates two operating segments (gas
transactional and electricity transactional) due to the consistent
nature of the services, customers and delivery processes.
The following segment information is presented in respect of the
Group's reportable segments together with additional balance sheet
information:
Asset Asset Energy Total
Management Installation Management Unallocated operations
31 December 2017 GBP'000 GBP'000 GBP'000 GBP'000 GBP'000
----------------------------- ----------- ------------- ----------- ----------- -----------
Segment/Group revenue 48,655 27,517 3,421 - 79,593
Cost of sales (18,958) (17,970) (2,236) - (39,164)
----------------------------- ----------- ------------- ----------- ----------- -----------
Segment profit -
Group gross profit 29,697 9,547 1,185 - 40,429
Items not reported
by segment
Other operating costs/income - - - (13,465) (13,465)
Depreciation - (24) - (669) (693)
Amortisation (2,151) - - - (2,151)
Exceptional items - - - (1,515) (1,515)
----------------------------- ----------- ------------- ----------- ----------- -----------
Profit from operations 27,546 9,523 1,185 (15,649) 22,605
Net finance costs:
exceptional - - - (524) (524)
Net finance costs:
other (4,116) - - - (4,116)
----------------------------- ----------- ------------- ----------- ----------- -----------
Profit before tax 23,430 9,523 1,185 (16,173) 17,965
Tax expense (3,306)
----------------------------- ----------- ------------- ----------- ----------- -----------
Profit for year 14,659
----------------------------- ----------- ------------- ----------- ----------- -----------
Asset Asset Energy Total
Management Installation Management Unallocated operations
31 December 2016 GBP'000 GBP'000 GBP'000 GBP'000 GBP'000
----------------------------- ----------- ------------- ----------- ----------- -----------
Segment/Group revenue 37,359 26,115 3,714 - 67,188
Cost of sales (14,441) (13,735) (2,081) - (30,257)
----------------------------- ----------- ------------- ----------- ----------- -----------
Segment profit - Group
gross profit 22,918 12,380 1,633 - 36,931
Items not reported
by segment
Other operating costs/income - - - (13,174) (13,174)
Depreciation - (22) - (721) (743)
Amortisation (1,991) - - - (1,991)
Exceptional items - - - (455) (455)
----------------------------- ----------- ------------- ----------- ----------- -----------
Profit from operations 20,927 12,358 1,633 (14,350) 20,568
Net finance costs (2,325) - - - (2,325)
----------------------------- ----------- ------------- ----------- ----------- -----------
Profit before tax 18,602 12,358 1,633 (14,350) 18,243
Tax expense (2,998)
----------------------------- ----------- ------------- ----------- ----------- -----------
Profit for year 15,245
----------------------------- ----------- ------------- ----------- ----------- -----------
Deprecation associated with meter assets has been reported
within cost of sales as the meter assets directly drive
revenue.
All revenues and operations are based and generated in the
UK.
The Group has one major customer that generated turnover within
each segment as listed below:
2017 2016
GBP'000 GBP'000
-------------------------------- -------- --------
Customer 1 - Asset Management 10,175 10,752
Customer 1 - Asset Installation 3,541 4,991
-------------------------------- -------- --------
13,716 15,743
-------------------------------- -------- --------
Segment assets and liabilities
Asset Asset Energy Total
Management Installation Management Unallocated operations
31 December 2017 GBP'000 GBP'000 GBP'000 GBP'000 GBP'000
----------------------- ----------- ------------- ----------- ----------- -----------
Assets reported by
segment
Intangible assets 10,373 3,497 - - 13,870
Property, plant and
equipment 261,992 251 - 3,103 265,346
Inventories 16,056 410 109 - 16,575
----------------------- ----------- ------------- ----------- ----------- -----------
288,421 4,158 109 3,103 295,791
Assets not by segment 177,020
----------------------- ----------- ------------- ----------- ----------- -----------
Total assets 472,811
----------------------- ----------- ------------- ----------- ----------- -----------
Liabilities by segment
Bank loans 187,084 - - - 187,084
----------------------- ----------- ------------- ----------- ----------- -----------
187,084 - - - 187,084
Liabilities not by
segment 58,106
----------------------- ----------- ------------- ----------- ----------- -----------
Total liabilities 245,190
----------------------- ----------- ------------- ----------- ----------- -----------
Asset Asset Energy Total
Management Installation Management Unallocated operations
31 December 2016 GBP'000 GBP'000 GBP'000 GBP'000 GBP'000
----------------------- ----------- ------------- ----------- ----------- -----------
Assets reported by
segment
Intangible assets 11,114 3,497 - - 14,611
Property, plant and
equipment 155,131 66 - 2,780 157,977
Inventories 5,569 446 106 - 6,121
----------------------- ----------- ------------- ----------- ----------- -----------
171,814 4,009 106 2,780 178,709
Assets not by segment 24,539
----------------------- ----------- ------------- ----------- ----------- -----------
Total assets 203,248
----------------------- ----------- ------------- ----------- ----------- -----------
Liabilities by segment
Bank loans 102,176 - - - 102,176
Obligations under hire
purchase agreements - 29 - - 29
----------------------- ----------- ------------- ----------- ----------- -----------
102,176 29 - - 102,205
Liabilities not by
segment 34,627
----------------------- ----------- ------------- ----------- ----------- -----------
Total liabilities 136,832
----------------------- ----------- ------------- ----------- ----------- -----------
2 Income statement by nature and items of expenditure included
in the Consolidated statement of comprehensive income
2017 2016
GBP'000 GBP'000
-------------------------------------------- -------- --------
Revenue 79,593 67,188
Direct rental costs (5,408) (4,684)
Direct subcontractor costs (4,667) (4,054)
Other direct sales costs and systems rental (14,360) (11,429)
Stock expense (1,360) (855)
Staff costs (14,400) (9,710)
Depreciation:
- owned assets (14,044) (9,898)
- leased assets (17) (79)
Amortisation (2,151) (1,991)
Other operating income 3,446 1,075
Auditor's remuneration:
- as auditor (202) (136)
- audit related assurance services (59) (9)
Exceptional costs (1,515) (455)
Operating lease rentals (1,621) (1,152)
Other operating charges (630) (3,242)
-------------------------------------------- -------- --------
Profit from operations 22,605 20,568
-------------------------------------------- -------- --------
Finance costs: exceptional (524) -
Finance costs: other (4,137) (2,327)
Finance income 21 2
-------------------------------------------- -------- --------
Profit before taxation 17,965 18,243
-------------------------------------------- -------- --------
Included in exceptional items are GBP300,000 (2016: GBPNil) of
refinance costs and GBP1,215,000 (2016: GBPNil) of redundancy,
other personnel, and property dilapidations costs relating to the
reorganisation of subsidiaries acquired in the prior year. Included
within depreciation - owned assets is GBP13,368,000 (2016:
GBP9,235,000) of depreciation that has been allocated and reported
in cost of sales. Exceptional finance costs of GBP524,000 relate to
the refinancing.
Auditor's remuneration can be analysed as:
2017 2016
GBP'000 GBP'000
----------------------------------------- -------- --------
Statutory Group audit 202 136
Other services - audit related assurance
services 59 9
----------------------------------------- -------- --------
261 145
----------------------------------------- -------- --------
3 Particulars of employees
The average number of staff employed by the Group, including
Executive Directors, during the financial year was:
2017 2016
Number Number
------------------------------- ------- -------
Number of administrative staff 188 100
Number of operational staff 563 580
Number of sales staff 3 2
Number of IT staff 35 30
Number of Directors 2 2
------------------------------- ------- -------
791 714
------------------------------- ------- -------
The aggregate payroll costs, including Executive Directors, of
the employees were:
2017 2016
GBP'000 GBP'000
----------------------- -------- --------
Wages and salaries 26,615 18,880
Social security costs 2,754 1,895
Staff pension costs 400 240
Share-based payment 446 444
Director pension costs 9 19
----------------------- -------- --------
30,224 21,478
----------------------- -------- --------
4 Directors' emoluments
The Directors' aggregate remuneration in respect of qualifying
services were:
2017 2016
GBP'000 GBP'000
---------------------------------------- -------- --------
Emoluments receivable 1,046 858
Value of Group pension contributions to
money purchase schemes 4 6
Other pension 1 13
---------------------------------------- -------- --------
1,051 877
---------------------------------------- -------- --------
During the year, GBP139,605 was payable to two Directors as
settlements following resignation.
During the year, no Directors exercised share options (2016: One
Director exercised 500,000 unapproved share options, resulting in a
gain of GBP1,725,000).
A pension contribution is paid into a private pension plan for
the CEO.
2017 2016
Emoluments of highest paid Director GBP'000 GBP'000
------------------------------------ -------- --------
Total emoluments 619 513
Pension contributions 1 13
------------------------------------ -------- --------
620 526
------------------------------------ -------- --------
The number of Directors who accrued benefits under Company
pension schemes was as follows:
2017 2016
Number Number
----------------------- ------- -------
Money purchase schemes 2 2
----------------------- ------- -------
5 Finance costs and finance income
2017 2016
GBP'000 GBP'000
------------------------------- -------- --------
Finance costs
Bank loans and overdrafts 4,134 2,323
Interest rate hedge fair value - (46)
Hire purchase 3 50
Exceptional finance costs 524 -
------------------------------- -------- --------
Total finance costs 4,661 2,327
------------------------------- -------- --------
Finance income
Bank interest receivable 21 2
------------------------------- -------- --------
Total finance income 21 2
------------------------------- -------- --------
6 Taxation
2017 2016
GBP'000 GBP'000
--------------------------------------- -------- --------
Analysis of charge in the year
Current tax:
Current income tax expense 971 1,362
Adjustment to tax charge in respect of
previous periods (83) 450
--------------------------------------- -------- --------
Total current income tax 888 1,812
Deferred tax:
Origination and reversal of temporary
differences 2,705 1,514
Adjustment to tax charge in respect of
prior periods (287) (328)
--------------------------------------- -------- --------
Tax on profit 3,306 2,998
--------------------------------------- -------- --------
The charge for the period can be reconciled to the profit per
the Consolidated statement of comprehensive income as follows:
Profit before tax 17,965 18,243
----------------------------------------- ------ ------
Tax at the UK corporation tax rate of
19.25% (2016: 20.00%) 3,458 3,649
Expenses not deductible for tax purposes (7) 11
Deferred tax not recognised 2 -
Adjustments to tax charge in respect of
previous periods 140 123
Change in tax rate (287) (785)
----------------------------------------- ------ ------
Tax expense in the income statement 3,306 2,998
----------------------------------------- ------ ------
Current tax credit through equity in the year was GBP0.97m
(2016: GBP1.25m).
7 Earnings per share (EPS)
The calculation of EPS is based on the following data and number
of shares:
2016
2017 GBP'000
GBP'000 restated
----------------------------------------- -------- ---------
Profit for the year used for calculation
of basic EPS 14,659 15,245
Amortisation of intangible assets 2,151 1,991
Exceptional costs 2,039 455
Tax effect of adjustments (780) (401)
----------------------------------------- -------- ---------
Earnings for the purpose of adjusted EPS 18,069 17,290
----------------------------------------- -------- ---------
Number of shares 2017 2016
------------------------------------------- ---------- ----------
Weighted average number of ordinary shares
for the purposes of basic EPS 90,655,868 87,955,744
Effect of potentially dilutive ordinary
shares:
- share options 1,615,280 1,604,623
------------------------------------------- ---------- ----------
Weighted average number of ordinary shares
for the purposes of diluted EPS 92,271,148 89,560,367
------------------------------------------- ---------- ----------
EPS:
- basic (pence) 16.17 17.33
- diluted (pence) 15.89 17.02
Adjusted EPS:
- basic (pence) 19.93 19.66
- diluted (pence) 19.58 19.31
------------------------------------------- ---------- ----------
The Directors consider that the adjusted EPS calculation gives a
better understanding of the Group's EPS as the adjusted earnings
basis better reflects the Group's underlying sustainable business
performance.
The 2016 EPS figures have been restated to reflect the Board's
decision to change the presentation of the underlying performance
measures to include other operating income.
8 Dividends
2017 2016
GBP'000 GBP'000
----------------------------------------- -------- --------
Equity dividends
Paid during the year:
Interim paid in respect of 2017, 1.74p
per share 1,576 -
Final paid in respect of 2016, 2.73p per
share 2,452 -
Interim paid in respect of 2016, 1.37p
per share - 1,226
Final paid in respect of 2015, 2.20p per
share - 1,919
----------------------------------------- -------- --------
Total dividends 4,028 3,145
----------------------------------------- -------- --------
A final dividend of 3.46p per share for the year ended 31
December 2017 has been proposed and is due to be paid in May
2018.
9 Intangible assets
Customer
Goodwill contracts Development Software Total
GBP'000 GBP'000 GBP'000 GBP'000 GBP'000
---------------------------- -------- ---------- ----------- -------- --------
Cost
As at 1 January 2016 4,112 2,160 2,073 5,281 13,626
Additions - - 454 630 1,084
Additions from acquisitions 3,497 6 - 2,000 5,503
Disposals - - (13) - (13)
---------------------------- -------- ---------- ----------- -------- --------
As at 31 December 2016 7,609 2,166 2,514 7,911 20,200
Additions - - 206 1,210 1,416
Disposals - - - (28) (28)
---------------------------- -------- ---------- ----------- -------- --------
As at 31 December 2017 7,609 2,166 2,720 9,093 21,588
---------------------------- -------- ---------- ----------- -------- --------
Amortisation
As at 1 January 2016 - 998 242 2,358 3,598
Charge for year - 432 228 1,331 1,991
---------------------------- -------- ---------- ----------- -------- --------
As at 31 December 2016 - 1,430 470 3,689 5,589
Charge for year - 171 159 1,820 2,150
Disposals - - - (21) (21)
---------------------------- -------- ---------- ----------- -------- --------
As at 31 December 2017 - 1,601 629 5,488 7,718
---------------------------- -------- ---------- ----------- -------- --------
Net book value
As at 31 December 2017 7,609 565 2,091 3,605 13,870
---------------------------- -------- ---------- ----------- -------- --------
As at 31 December 2016 7,609 736 2,044 4,222 14,611
---------------------------- -------- ---------- ----------- -------- --------
As at 1 January 2016 4,112 1,162 1,831 2,923 10,028
---------------------------- -------- ---------- ----------- -------- --------
10 Property, plant and equipment
Fixtures,
Freehold/ Plant fittings
leasehold and and Motor
property machinery equipment vehicles Total
GBP'000 GBP'000 GBP'000 GBP'000 GBP'000
---------------------------- ---------- ---------- ----------- --------- --------
Cost
As at 1 January 2016 2,144 139,616 1,418 80 143,258
Additions 20 42,503 381 - 42,904
Additions from acquisitions 75 69 309 1,384 1,837
Disposals - (1,479) - (1,295) (2,774)
---------------------------- ---------- ---------- ----------- --------- --------
As at 31 December 2016 2,239 180,709 2,108 169 185,225
Additions 61 122,782 1,020 1 123,864
Disposals - (3,359) (63) (87) (3,509)
---------------------------- ---------- ---------- ----------- --------- --------
As at 31 December 2017 2,300 300,132 3,065 83 305,580
---------------------------- ---------- ---------- ----------- --------- --------
Depreciation
As at 1 January 2016 170 16,499 832 57 17,558
Charge for year 93 9,235 508 141 9,977
Disposals - (217) - (70) (287)
As at 31 December 2016 263 25,517 1,340 128 27,248
Charge for year 129 13,368 540 24 14,061
Disposals - (994) (12) (69) (1,075)
---------------------------- ---------- ---------- ----------- --------- --------
As at 31 December 2017 392 37,891 1,868 83 40,234
---------------------------- ---------- ---------- ----------- --------- --------
Net book value
As at 31 December 2017 1,908 262,241 1,197 - 265,346
---------------------------- ---------- ---------- ----------- --------- --------
As at 31 December 2016 1,976 155,192 768 41 157,977
---------------------------- ---------- ---------- ----------- --------- --------
As at 1 January 2016 1,974 123,117 586 23 125,700
---------------------------- ---------- ---------- ----------- --------- --------
The assets are secured by a bond and floating charge (note
17).
Hire purchase agreements
Included within the net book value of GBP265,346,000 (2016:
GBP157,977,000) is GBPNil (2016: GBP16,839) relating to assets held
under hire purchase agreements. The depreciation charged to the
consolidated financial statements in the year in respect of such
assets amounted to GBP16,839 (2016: GBP79,578).
11 Financial asset investments
Shares
in
Group Unlisted
undertaking investments Total
GBP'000 GBP'000 GBP'000
-------------------------------- ------------ ------------ --------
Cost
-------------------------------- ------------ ------------ --------
As at 1 January and 31 December
2017 43 75 118
-------------------------------- ------------ ------------ --------
Share in Group undertakings are not consolidated on the basis
that they are not material to the Group.
12 Impairment of goodwill
The goodwill acquired in business combinations is allocated, at
acquisition, to the CGUs that are expected to benefit from that
business combination. The goodwill is allocated to the Asset
Management and Asset Installation segments, which are the segments
that are expected to benefit from combining gas and electricity
offerings. The Group tests goodwill annually for impairment or more
frequently if there are indications that goodwill might be
impaired. The annual impairment test was performed and no evidence
of impairment was found as at the balance sheet date.
Goodwill has been tested for impairment by comparing the
carrying amount of each CGU, including goodwill, with the
recoverable amount. The recoverable amounts are determined from
value-in-use calculations.
The key assumptions for the value-in-use calculations are those
regarding pre-tax cash flow projections, discount rates and growth
rates. The pre-tax cash flow is based on past performance and
expectations as set out in the latest projections based on
financial budgets approved by management. This discount rate
reflects the current market assessment of the time value of money.
Long-term growth is assumed at 2% and the estimated cash flows are
derived by discounting future cash flows that are based on
conservative growth and attrition rates and discounted at a pre-tax
rate of 8.2%.
Base case forecasts show significant headroom above the carrying
value of each CGU; there is no reasonably possible change that
would cause the carrying values to exceed recoverable amounts.
13 Inventories
2017 2016
GBP'000 GBP'000
--------------- -------- --------
Finished goods 16,049 5,569
Consumables 526 552
--------------- -------- --------
16,575 6,121
--------------- -------- --------
14 Trade and other receivables
2017 2016
GBP'000 GBP'000
Trade receivables 10,959 7,610
Prepayments 1,421 1,369
Accrued income 9,812 5,248
Other receivables 1,263 617
VAT recoverable 1,827 892
Income tax recoverable 426 58
----------------------- -------- --------
25,708 15,794
----------------------- -------- --------
Amounts falling due after more than one year:
2017 2016
GBP'000 GBP'000
--------------- -------- --------
Accrued income 594 628
--------------- -------- --------
The Directors consider that the carrying amount of trade and
other receivables approximates to their fair value.
The Group's credit risk is primarily attributable to trade
receivables and accrued income. The amounts presented in the
Consolidated statement of financial position are net of allowances
for doubtful receivables. The allowance for doubtful receivables in
the year was GBP1,812,000 (2016: GBP1,082,000). The ageing profile
of trade receivables past due date is shown below:
2017 2016
GBP'000 GBP'000
----------------------------------- -------- --------
31-60 days 2,572 1,039
61-90 days 114 391
Over 90 days 3,055 1,883
----------------------------------- -------- --------
5,741 3,313
Allowance for doubtful receivables (1,812) (1,082)
----------------------------------- -------- --------
3,929 2,231
----------------------------------- -------- --------
Trade receivables are non-interest bearing and are generally on
30-90-day terms.
Trade receivables due from related parties at 31 December 2017
amounted to GBPNil (2016: GBPNil).
Receivables are all in Sterling denominations.
The Directors are of the opinion that GBP1,812,000 of the
overdue debts as at 31 December 2017 require impairment.
Accrued income is presented net of allowances for provisions,
with accrued income being invoiced periodically and customers being
the same as those within trade receivables.
15 Cash and cash equivalents
Cash and cash equivalents comprises cash held by the Group. The
carrying amount of the asset approximates the fair value. All
balances are held in Sterling.
During each period, there were no amounts of cash placed on
short-term deposit.
For the purposes of the cash flow statement, cash and cash
equivalents comprises:
2017 2016
GBP'000 GBP'000
----- -------- --------
Cash 150,600 7,999
----- -------- --------
150,600 7,999
----- -------- --------
16 Trade and other payables
2017 2016
GBP'000 GBP'000
------------------- -------- --------
Current
Trade payables 23,923 11,421
Other payables 1,396 2,913
Advance payments 2,032 2,700
Other taxes 2,718 1,782
Deferred income 2,311 790
Accruals 15,802 6,411
Income tax payable - 725
------------------- -------- --------
48,182 26,742
------------------- -------- --------
The Directors consider that the carrying amount of trade and
other payables approximates to their fair value.
Trade payables are non-interest bearing and are normally settled
on 30-45-day terms.
All trade liabilities are Sterling denominated.
17 Bank loans and overdrafts
2017 2016
GBP'000 GBP'000
------------ -------- --------
Current
Bank loans 23,197 14,530
------------ -------- --------
23,197 14,530
------------ -------- --------
Non-current
Bank loans 163,887 87,646
------------ -------- --------
163,887 87,646
------------ -------- --------
Bank loans at 31 December 2017 relate to a revolving credit
facility of GBP280m. In November 2017, SMS plc agreed a refinancing
of this facility with its existing syndicate of banks. This
extended debt Facility extended the maturity date of the existing
facility from March 2019 to November 2020 on similarly attractive
terms to the existing facility. The extension of the facility
results in GBP0.5m of finance costs that have been expensed through
the profit and loss as exceptional.
The loan is available for 36 months, is payable in equal
quarterly instalments based on a ten-year repayment profile, with
final repayment due in November 2020. The loan attracts interest at
a rate of 1.85% over the three-month LIBOR. 0.65% is paid on
undrawn funds. The syndicate of banks compromise Barclays Bank plc,
Santander UK plc, HSBC UK, Clydesdale Bank plc and Bank of Scotland
plc.
The banks have a bond and floating charge over current and
future property and assets.
18 Commitments under hire purchase agreements
Future minimal commitments under hire purchase agreements are as
follows:
2017 2016
GBP'000 GBP'000
------------------------------------------- -------- --------
Current
Amounts payable within one year - 28
------------------------------------------- -------- --------
Non-current
Amounts payable between two and five years - 1
------------------------------------------- -------- --------
The Group no longer holds any hire purchase commitments. In
2016, the Group held hire purchase contracts for various items of
computer equipment.
19 Financial risk management
The Board reviews and agrees policies for managing the risks
associated with interest rate, credit and liquidity risk. The Group
has in place a risk management policy that seeks to minimise any
adverse effect on the financial performance of the Group by
continually monitoring the following risks:
Interest rate risk
The Group's interest rate risk arises as a result of both its
long and short-term borrowing facilities.
The Group seeks to manage exposure to interest rate fluctuations
through the use of fixed interest rate swaps.
Interest rate sensitivity
The following table demonstrates the sensitivity to a change in
interest rates on loans and borrowings after the impact of hedge
accounting. The Group's profit before tax is affected through the
impact on floating rate borrowings as follows:
Effect
on profit
Increase/decrease before
in basis tax
Pounds Sterling points GBP'000
----------------- ------------------- -----------
2017 +70bps (741)
2016 - 46
----------------- ------------------- -----------
The Group can fix its variable rate borrowings for an additional
premium of 70bps and we accordingly show the annual impact on our
profit before tax. As mentioned in note 28 we have repaid GBP100
million of the debt on 28 February 2018.
Interest rate risk profile of financial liabilities
The interest rate profile of the financial liabilities of the
Group (being bank loans and overdrafts, obligations under finance
leases and other financial liabilities) as at each period end is as
follows:
Fixed Variable
rate rate
financial financial
liabilities liabilities Total
GBP'000 GBP'000 GBP'000
--------------- ------------ ------------ --------
2017 - 206,568 206,568
2016 - 112,796 112,796
1 January 2016 26,400 58,556 84,956
--------------- ------------ ------------ --------
The fixed rate financial liabilities present at the start of
2016 related to the portion of the banking facility that was fixed
through hedging instruments.
Interest rate risk profile of financial assets
The Group's financial assets at 31 December 2017 comprise cash
and trade receivables. The cash balance of GBP150,600,000 (2016:
GBP7,999,000) is a floating rate financial asset.
Fair values of financial liabilities and financial assets
The fair values, based upon the market value or discounted cash
flows of financial liabilities and financial assets held in the
Group, were not materially different from their book values.
Foreign currency risk
The Group's exposure to the risk of changes in foreign exchange
is insignificant as primarily all of the Group's operating
activities are denominated in Pounds Sterling.
Liquidity risk
The Group manages its cash in a manner designed to ensure
maximum benefit is gained whilst ensuring security of investment
sources. The Group's policy on investment of surplus funds is to
place deposits at institutions with strong credit ratings; this is
considered to be institutions with a credit rating of AA- and
above. Currently, all of the chosen investment institutions are in
line with this criteria.
The ageing and maturity profile of the Group's material
liabilities is covered within the relevant liability note or
below.
2017 2016
GBP'000 GBP'000
------------------- -------- --------
Variable rate
Less than one year 27,500 16,574
Two to five years 104,664 62,792
Over five years 74,404 33,430
------------------- -------- --------
206,568 112,796
------------------- -------- --------
Credit risk
Credit risk with respect to trade receivables and accrued income
is due to the Group trading with a limited number of companies
which are generally large utility companies or financial
institutions. Therefore, the Group does not expect, in the normal
course of events, that these debts are at significant risk. The
Group's maximum exposure to credit risk equates to the carrying
value of cash held on deposit and trade, other receivables and
accrued income.
The Group's maximum exposure to credit risk from its customers
is GBP20,771,000 (2016: GBP12,858,000) as disclosed in note 14 -
trade receivables and accrued income.
The Group regularly monitors and updates its cash flow forecasts
to ensure it has sufficient and appropriate funds to meet its
ongoing operational requirements whilst maintaining adequate
headroom on its facilities to ensure no breach in its banking
covenants.
Capital management
Capital is the equity attributable to the equity holders of the
parent. The primary objective of the Group's capital management is
to ensure that it maintains a strong credit rating and healthy
capital ratios in order to support its business and maximise
shareholder value. The Group manages its capital structure, and
makes adjustments to it, in light of changes in economic
conditions. To maintain or adjust the capital structure, the Group
may adjust the dividend payment to shareholders, sell assets,
return capital to shareholders or issue new shares.
The Group monitors capital on the basis of a leverage ratio.
This ratio is calculated as net debt divided by pre-exceptional
EBITDA. Net debt is calculated as total borrowings less cash.
Pre-exceptional EBITDA is calculated as operating profit before any
significant exceptional items, interest, tax, depreciation and
amortisation.
The objective of SMS's strategy is to deliver long-term value to
its shareholders whilst maintaining a balance sheet structure that
safeguards the Group's nancial position. From an ordinary dividend
perspective our objective is to provide a progressive, through
cycle dividend that reflects the potential volatility of our
business.
20 Deferred taxation
The movement in the deferred taxation liability during the
period was:
2017 2016
GBP'000 GBP'000
------------------------------------------- -------- --------
Opening deferred tax liability 7,885 6,139
Increase in provision through Consolidated
statement of comprehensive income 2,418 1,186
Increase in provision through equity (379) 98
Deferred tax on intangibles acquired as
part of acquisitions - 462
Closing deferred tax liability 9,924 7,885
------------------------------------------- -------- --------
All movements identified have gone through the consolidated
statement of comprehensive income.
The Group's provision for deferred taxation consists of the tax
effect of temporary differences in respect of:
2017 2016
GBP'000 GBP'000
------------------------------------------------ -------- --------
Excess of taxation allowances over depreciation
on property, plant and equipment 11,559 8,934
Tax losses available (61) (265)
Deferred tax asset on share options (1,998) (1,643)
Deferred tax on intangible acquired 427 679
Other (3) 180
------------------------------------------------ -------- --------
9,924 7,885
------------------------------------------------ -------- --------
The deferred tax included in the Consolidated statement of
comprehensive income is as follows:
2017 2016
GBP'000 GBP'000
---------------------------------------- -------- --------
Accelerated capital allowances 2,431 1,690
Tax losses 204 (175)
Deferred tax asset on share options 22 (33)
Movement in fair value of intangibles (252) (491)
Movement in fair value of interest rate
swaps - 10
Other 13 184
---------------------------------------- -------- --------
2,418 1,185
---------------------------------------- -------- --------
Finance Bill 2016 which, was substantively enacted on 15
September 2016, included legislation reducing the main rate of UK
corporation tax from 20% to 17%. This decrease is being phased in
with the reduction to 19% effective from 1 April 2017, and a
further reduction to 17% effective from 1 April 2020. Consequently
deferred tax has been provided at the tax rates at which temporary
differences are expected to reverse.
21 Related party transactions
A number of key management personnel hold positions in other
entities that result in them having control or significant
influence over the financial or operating policies.
A number of these entities transacted with the Group in the
reporting period. The terms and conditions of the transactions with
key management personnel and their related parties were no more
favourable than those available, or which might reasonably be
expected to be available, on similar transactions to non-key
management personnel and related entities on an arm's length
basis.
During the period, the Group entered into the following
transactions with related parties:
During the year the Group paid rent amounting to GBP49,800
(2016: GBP41,500) to the Directors' pension scheme, Eco Retirement
Benefit Scheme, for the use of certain premises. Alan Foy is a
trustee of the scheme. At the year-end date, an amount of GBP8,300
(2016: GBP4,150) was outstanding in this regard.
The Group also paid rent of GBPNil (2016: GBP28,417) to another
individual classified as key management for the use of certain
premises.
During the year, the Group paid dividends to Alan Foy of
GBP320,973 (2016: GBP269,548), Miriam Greenwood of GBP723 (2016:
GBP421), Willie MacDiarmid(1) of GBP265 (2016: GBPNil) and Graeme
Bissett of GBP237 (2016: GBPNil). At the year end Trojan Utilities
Limited had a balance with Utilities Academy Limited of GBP26,442
(2016: GBP26,442) with transactions during the year amounting to
GBP3,165 (2016: GBP49,508).
Remuneration of key management, which includes Executive and
Non-executive Directors together with certain management personnel,
was as follows:
2017 2016
GBP'000 GBP'000
--------------------------------------- -------- --------
Salaries and other short-term employee
benefits 2,073 1,622
--------------------------------------- -------- --------
1 Paid to a connected person.
22 Share capital
2017 2016
GBP'000 GBP'000
---------------------------------------- -------- --------
Allotted and called up:
112,450,800 ordinary shares of GBP0.01
each (2016: 89,203,739 ordinary shares
of GBP0.01 each) 1,124 892
---------------------------------------- -------- --------
On 24 November 2017 the Company completed a placing of new
shares (21,739,131 ordinary shares at 690p per ordinary share) to
raise gross proceeds of GBP150m. The net proceeds of the placing
are to be utilised alongside the extended debt facility to give SMS
plc the financial and operational flexibility to fully fund the
installation of approximately 2.5 million meters.
During the year 1,222,563 (2016: 2,018,772) ordinary share
options were exercised in relation to the Group's employee share
plans which are described in note 23. The ordinary shares issued
have a nominal value of GBP12,226 (2016: GBP20,188), and aggregate
consideration of GBP1,985,487 (2016: 1,231,617) was received.
On 5 April 2016 and on 15 September 2016, 1,072,055 ordinary
shares and 285,367 ordinary shares were issued respectively as
consideration for the acquisition of CH4 Gas Utility and
Maintenance Services Limited ("CH4"), Trojan Utilities Limited
("Trojan") and Qton Solutions Limited ("Qton").
23 Share-based payments
On 20 June 2011, the Company adopted both an Approved Company
Share Option Plan (CSOP) and an Unapproved Company Share Option
Plan ("the Unapproved Plan").
CSOP
The CSOP is open to any employee of any member of the Group up
to a maximum value of GBP30,000 per employee. No option can be
exercised within three years of its date of grant. The performance
conditions for awards are based on market capitalisation and
individual performance targets.
Unapproved Plan
The Unapproved Plan is open to any employee, Executive Director
or Non-executive Director of the Company or any other Group company
who is required to devote substantially the whole of his time to
his duties under his contract of employment. Except in certain
specified circumstances no option will be exercisable within five
years of its grant. The performance conditions for awards are based
on market capitalisation and individual performance targets. The
options granted on 28 June 2013 were granted following the
surrender of previously vested awards held by the Non-executive
Directors and became exercisable immediately on the date of
grant.
At At Exercise
1 January 31 December price Date Expiry
Plan 2017 Granted Exercised Lapsed 2017 (pence) exercisable date
----------- ---------- ------- --------- --------- ------------ -------- ------------ --------
CSOP 86,127 - (57,674) - 28,453 76.0 15/07/14 15/07/21
Unapproved 589,666 - (268,000) - 321,666 60.0 20/06/16 20/06/21
Unapproved 1,101,189 - (651,189) - 450,000 153.5 28/05/17 28/05/22
Unapproved 28,700 - (28,700) - - 60.0 28/06/13 28/06/23
Unapproved 1,301,070 - (217,000) (301,785) 782,285 350.0 12/11/19 12/11/24
Unapproved 317,382 - - (18,033) 299,349 391.8 20/03/21 19/03/26
Unapproved 36,586 - - - 36,586 410.0 04/07/21 03/07/26
Unapproved 172,634 - - (14,630) 158,004 470.0 18/08/21 17/08/26
Unapproved 100,000 - - - 100,000 529.0 01/09/21 31/08/26
Unapproved 50,000 - - - 50,000 529.0 26/09/21 25/09/26
----------- ---------- ------- --------- --------- ------------ -------- ------------ --------
The average weighted average share price at the date of exercise
was GBP6.20.
Valuation
The fair value of all options granted has been estimated using
appropriate option pricing models, taking into account the terms
upon which the options were granted, including the market-based
performance conditions. The fair value per share of the outstanding
options were estimated as follows:
Fair value
Grant date Plan (pence)
------------------ ----------- ----------
15 July 2011 CSOP 17.1
20 June 2011 Unapproved 13.0
28 May 2012 Unapproved 40.0
28 June 2013 Unapproved 244.0
12 November 2014 Unapproved 84.8
20 March 2016 Unapproved 61.5
4 July 2016 Unapproved 114.3
18 August 2016 Unapproved 87.2
1 September 2016 Unapproved 141.5
26 September 2016 Unapproved 142.4
------------------ ----------- ----------
The total fair value of these options is recognised over the
period from their grant date until they become exercisable.
Share Incentive Plan (SIP)
The Company introduced the Smart Metering Systems Share
Incentive Plan (SIP) in October 2014. All employees of the Group
(including Executive Directors) are eligible to participate in the
SIP. Participants may each acquire "Partnership Shares" worth up to
GBP1,800 per year from their pre-tax earnings at market value. The
Company awards participants one Matching Share for each Partnership
Share which they acquire. Dividends received on shares held in the
SIP are reinvested to acquire Dividend Shares at market value.
Matching Shares may be forfeited if the participant disposes of the
corresponding Partnership Shares or leaves the employment of the
Group within three years of the award date.
SIP awards
The table below shows the number of shares held in the SIP at
the beginning and end of the financial year:
Weighted
At At average
1 January Awarded 31 December acquisition
Type of award 2017 shares Sold Lapsed 2017 price
-------------- ---------- ------- -------- ------- ------------ ------------
Partnership 94,107 43,849 (13,628) - 124,328 GBP4.79
Matching 93,707 43,849 (4,632) (6,264) 126,660 GBP4.79
Dividend 1,497 1,419 (154) - 2,762 GBP5.22
-------------- ---------- ------- -------- ------- ------------ ------------
Total 189,311 89,117 (18,414) (6,264) 253,750
-------------- ---------- ------- -------- ------- ------------ ------------
24 Other reserve
This is a non-distributable reserve that initially arose by
applying merger relief under section 162 of the Companies Act 2006
to the shares issued in 2009 in connection with the Group
restructuring. This was previously recognised as a merger reserve
under UK GAAP. Under IFRS, this has been classed as an "other
reserve". Additionally, the premium of GBP4,189,000 and
GBP1,115,000 arising on the issue of shares as part of the
acquisitions of CH4 Gas Utility and Maintenance Services Limited
("CH4"), Trojan Utilities Limited ("Trojan") and Qton Solutions
Limited ("Qton") has been credited to this reserve.
25 Commitments under operating leases
The Group has entered into commercial leases for office space
and various items of office equipment. These leases have lives
between one and 15 years and some have renewal options included in
the contracts. There are no restrictions placed upon the Group by
entering into these leases.
Future minimum rentals payable under non-cancellable operating
leases as at each year end are as follows:
2017 2016
GBP'000 GBP'000
------------------------------------------- -------- --------
Future minimal commitments under operating
lease agreements are as follows:
Payable within one year 1,262 1,543
Payable within two and five years 1,884 2,144
Payable after five years 477 162
------------------------------------------- -------- --------
3,623 3,849
------------------------------------------- -------- --------
26 Ultimate controlling party
There is no ultimate controlling party by virtue of the
structure of shareholdings in the Group.
27 Business combinations
Acquisitions of Trojan, CH4 and Qton
On 18 March 2016, the Group acquired 100% of the issued share
capital of CH4 Gas Utility and Maintenance Services Limited
("CH4"), 100% of the issued share capital of Trojan Utilities
Limited ("Trojan") and 100% of the issued share capital of Qton
Solutions Limited ("Qton").
CH4 and Trojan are meter suppliers and they enhance SMS's
capability to be a key participant in the substantial new Domestic
smart meter market for homes and small businesses in the UK.
Alongside these installation businesses, Qton helps to serve
SMS's existing and future contracts and helps to ensure full
confidence to energy suppliers throughout the domestic smart meter
rollout.
CH4 is a specialist in traditional and smart gas and electricity
metering installations to the Domestic and I&C sectors. It
operates throughout the UK and was a service provider to SMS prior
to acquisition.
Trojan is a leading installation service provider to energy
suppliers in the UK and delivers domestic smart gas and electricity
trained and accredited installation services.
Qton has a team of IT professionals specialising in the
provision of work and field management IT systems applications for
gas and electricity metering installations. The customers for the
company's solutions are energy suppliers, installations contractors
and meter asset managers and owners in the UK with specific
applications tailored for domestic dual fuel smart
installations.
The acquisition was accounted for using the acquisition method.
The fair value of the identifiable assets and liabilities of each
company as at the date of acquisition was as follows:
CH4 Trojan Qton Total
GBP'000 GBP'000 GBP'000 GBP'000
-------------------------------- -------- -------- -------- --------
Property, plant and equipment 366 1,459 18 1,843
Software - 500 1,500 2,000
Customer contracts - - - -
Other financial assets - 109 - 109
Inventories 175 73 - 248
Trade and other receivables 1,622 673 228 2,523
Cash and cash equivalents 167 88 197 452
-------------------------------- -------- -------- -------- --------
Total assets 2,330 2,902 1,943 7,175
-------------------------------- -------- -------- -------- --------
Trade and other payables (551) (516) (38) (1,105)
Accruals and deferred income (1,046) (1,624) (564) (3,234)
Obligations under hire purchase
agreements (92) (923) - (1,015)
-------------------------------- -------- -------- -------- --------
Total liabilities (1,689) (3,063) (602) (5,354)
-------------------------------- -------- -------- -------- --------
Acquisition date fair value
of the assets 641 (161) 1,341 1,821
Goodwill arising on acquisition 1,359 579 1,559 3,497
-------------------------------- -------- -------- -------- --------
Total consideration transferred
(as equity instruments) 2,000 418 2,900 5,318
-------------------------------- -------- -------- -------- --------
On 5 April 2016 1,072,055 ordinary shares were issued as
consideration for the acquisitions of CH4, Trojan and Qton at a
price of 391.775p
The fair value of the equity instruments (ordinary shares)
issued as consideration paid was determined on the basis of the
closing market price of SMS's ordinary shares on the date of
acquisition.
There are no contingent consideration arrangements in any of the
acquisitions.
The comparative financial information for 2016 includes the
results of CH4, Trojan and Qton for the period 18 March 2016 to 31
December 2016, during which time:
CH4 Trojan Qton Total
GBP'000 GBP'000 GBP'000 GBP'000
---------------------------- -------- -------- -------- --------
The contribution to revenue
by each company was: 907 5,115 871 6,893
And to Group profit for the
period was: (1,224) (1,502) 351 (2,376)
---------------------------- -------- -------- -------- --------
If the combinations had each taken place at the beginning of the
period:
CH4 Trojan Qton Total
GBP'000 GBP'000 GBP'000 GBP'000
-------------------------------- -------- -------- -------- --------
The contribution to Group
profit from each would have
been: (1,521) (1,698) (158) (3,377)
And the contribution to revenue
from continuing operations
from each would have been: 2,140 6,576 1,163 9,879
-------------------------------- -------- -------- -------- --------
The acquisitions of CH4 and Trojan were part of the Group's
strategy to gain direct control of a large proportion of our
installation capacity for ongoing delivery of our customer
contracts in the I&C and Domestic meter markets. This continues
to provide confidence to our customers in our delivery model for
the new Domestic smart metering market. In addition, the
acquisition of Qton allowed the Group to gain direct control and
ownership of all software applications used by SMS for asset
installation and ongoing management.
The goodwill recognised above is attributed to the expected
benefits of securing our installation capacity and controlling our
software applications.
None of the goodwill recognised is deductible for income tax
purposes.
The primary components of this residual goodwill comprise:
-- the workforce;
-- the software capability;
-- revenue synergies from dual fuel; and
-- new opportunities available to each company as part of the larger AIM-listed Group
The identifiable intangible assets will be amortised as
follows:
-- Software - 20%
-- Customer contracts - 20%
Transaction costs and expenses directly relating to the
acquisitions of GBP455,000 have been disclosed as exceptional items
in the 2016 comparative figures.
28 Post balance sheet events
In February 2018, the Company paid its revolving credit facility
down by GBP100m.
This information is provided by RNS
The company news service from the London Stock Exchange
END
FR SFUEDEFASEFD
(END) Dow Jones Newswires
March 13, 2018 03:00 ET (07:00 GMT)
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